By Joshua Celeste | Companies today often need to protect confidential information at one time or another, such as when introducing a new product or service, negotiating the hire of a key employee or buying/selling a business. A confidentiality agreement is a contract placing a requirement of secrecy on one or both parties for non-public information shared over the course of the dealings.

A confidentiality agreement, also referred to as a non-disclosure agreement or NDA, is typically the start of a business relationship between two parties.  Most confidentiality agreements are structured in a similar manner. They outline who is providing/receiving information and define confidential information (and exclusion therefrom) and the “purpose” of the confidentiality agreement. They also may include the term of the confidentiality agreement and what to do with the confidential information once the term expires … among other things.

In most instances, parties to a confidentially agreement are more concerned with the confidential information they will be disclosing.  However, when parties are competitors or in similar market verticals, the receipt of confidential information can also be an area of concern and could, potentially, cause the receiving party to be subject to restrictions in the marketplace.  A common example is the disclosure of customer lists or customer relationships (which are typically held back until there is a comfort level that the transaction will be completed).

When customer information is disclosed, the fundamental question is whether a party receiving the information is then restricted or prevented from soliciting business from a customer that is disclosed.  Would this disclosure unintentionally (or worse, intentionally) restrict a party from doing business with a disclosed customer?

The answers depend on the contractual terms and scope of the confidentiality agreement, which need to be contemplated and negotiated when entering into an agreement with a competitor.  Since a party cannot “un-know” disclosed information, the two easiest ways to guard and protect against this result are to: (1) clearly define the “purpose” and (2) contractually dictate timing/disclosure as to when information may or can be disclosed.

A clearly defined “purpose” as part of the confidentially agreement can limit the scope of what would be subject to the agreement.  In addition, the parties can include a provision that would prohibit disclosure of certain information (such as customer information); any prohibited disclosure would be in violation of the agreement and not be subject to the protections provided.

One point of note: Most states have laws and rights that protect proprietary information.  When drafting a confidentiality agreement, the parties should conduct a review of these laws and rights to best address the disclosure and the protections afforded to proprietary information; these laws and rights would be in addition to the scope of the confidentiality agreement.

To learn more, contact Josh Celeste at 401.455.0700 or via email at jceleste@DuffySweeney.com.